Kenya needs a man­u­fac­tur­ing re­nais­sance

T he typ­i­cal mi­cro en­ter­prise in Kenya is in the ser­vices sec­tor. This is mainly whole­sale and re­tail trade, re­pair of mo­tor ve­hi­cles and mo­tor cy­cles, and ac­com­mo­da­tion and food ser­vices. The re­cent sur­vey by the Kenya Bureau of Statis­tics shows they com­prise 72 per cent of the es­ti­mated 5.85 mil­lion mi­cro busi­nesses. Only a hand­ful 12 per cent are in­volved in man­u­fac­tur­ing.

The low level of man­u­fac­tur­ing is a pointer to the high level of im­ports, es­pe­cially for non-essen­tial goods that are a drain to for­eign ex­change. As re­cently pointed out by the head of African De­vel­op­ment Bank, Africa must be­gin a man­u­fac­tur­ing re­nais­sance to take over from China. The chal­lenge is whether the coun­try is pre­pared to at­tract pro­duc­tion.

A com­pet­i­tive and pri­vate sec­tor-led man­u­fac­tur­ing sec­tor pro­vides mass job creation thus widely spread­ing wealth and re­duc­ing poverty. Typ­i­cally, man­u­fac­tur­ing in in­dus­tri­al­is­ing coun­tries ac­count for 30 to 40 per cent of their GDP-wealth of the coun­try. By com­par­i­son, man­u­fac­tur­ing con­trib­utes about 11 per cent of the GDP in Kenya. This shows the un­der­utilised po­ten­tial of this very im­por­tant sec­tor. Per­haps more im­por­tantly, the sec­tor has ei­ther stag­nated or de­clined in the re­cent past. Ei­ther the in­cen­tives to grow the sec­tor are not ad­e­quate, or not ef­fec­tive.

Granted, Kenya has a nascent man­u­fac­tur­ing in­dus­try and leads in the re­gional. Kenya man­u­fac­tur­ing in­cludes chem­i­cals, rub­ber and plas­tic prod­ucts and ba­sic metal prod­ucts as well as mo­tor ve­hi­cle assem­bly. How­ever, it is es­ti­mated that 90 per cent of the inputs are im­ported, fur­ther high­light­ing the ab­sence of lo­cal ba­sic in­dus­tries.

Sev­eral rea­sons for a weak man­u­fac­tur­ing sec­tor have been em­pha­sised in a study by the Africa De­vel­op­ment Bank. Weak in­fra­struc­ture and reg­u­la­tory en­vi­ron­ment are the two main con­traints.

One, eco­nomic in­fra­struc­ture is weak by any stan­dards. In par­tic­u­lar, en­ergy sup­ply is com­par­a­tively ex­pen­sive, in­d­e­quate and with un­pre­dictable power black­outs. The need for sup­ple­men­tary power gen­er­a­tion equip­ment be­comes an ad­di­tional cost fac­tor. Al­though Kenya has a rel­a­tively good road net­work, road trans­port is ex­pen­sive. The rail­way net­work is weak. An ex­ten­sive rail­way net­work is a ne­ces­sity, so is an ef­fi­cient port sys­tem.

Two, the le­gal and reg­u­la­tory en­vi­ron­ment makes it dif­fi­cult to es­tab­lish a for­mal busi­nesses. To achieve growth, small busi­nesses need to grow from mak­ing a few items to scal­ing up pro­duc­tion. This means iden­ti­fy­ing gaps such as lack of tech­ni­cal skills and ad­dress­ing them through the ed­u­ca­tion sys­tem. As un­der­lined in the AfDB re­port, “it is not sim­ply mak­ing things that mat­ters, but mak­ing things at scale”.